Markets set to open higher as Fed reaffirms plan for two rate cuts in 2025

Indian benchmark indices have logged in a three-day winning streak.

The Indian equity market is likely to open on a strong footing on March 20, tracking cues from global markets after the Federal Reserve reiterated plans for two more rate cuts in 2025. For the Indian markets, the GIFT Nifty signals a strong start, with the benchmark index poised to surpass the 23,000 mark in the March 20 session.

The latest rate projections revealed that a narrow majority of Fed officials still anticipate a total of half a percentage point in rate cuts this year, implying two quarter-point reductions, unchanged from their December forecast.

Buoyed by this, Wall Street indices extended their initial gains to end the overnight session on a positive hold. The Dow Jones Industrial Average, S&P 500 and the tech-heavy Nasdaq gained 1-1.4 percent.

Asia-Pacific markets also rose, taking cues from Wall Street’s gains after the Federal Reserve held interest rates steady and downplayed the risk of a severe economic downturn.

Australia’s S&P/ASX 200 rose 0.77 percent at the open, South Korea’s Kospi climbed 0.64 percent and the small-cap Kosdaq added 0.55 percent. Hong Kong’s Hang Seng index futures stood at 24,719, slightly weaker than the previous close of 24,771.14. Japan’s markets remained shut for a holiday.

As for the outcome, the US central bank decided to keep interest rates unchanged at 4.25-4.50 percent, a move that markets widely anticipated.

Citing rising 'uncertainty' around the economic outlook in recent weeks, the Federal Reserve highlighted concerns over upside risks to inflation, particularly in light of Trump's tariff plans.

Reflecting these concerns, the rate-setting panel raised its median estimate for core inflation to 2.8 percent from 2.5 percent by year-end. Economic growth projections for 2025 were revised downward to 1.7 percent from the previous 2.1 percent forecast, while the unemployment rate estimate was adjusted slightly higher to 4.4 percent from 4.3 percent in December.

Fed Chair Jerome Powell acknowledged the challenge of assessing the precise impact of tariffs on inflation at this stage. However, he noted that current surveys suggest tariffs are driving inflation expectations higher and that inflation itself has begun to rise, partly due to these trade policies.

"The positive reaction from markets likely reflects some relief that despite the potential for tariffs to drive inflation modestly higher, Fed Chair Powell reiterated that they believe the inflationary impact of tariffs will be transitory as opposed to ongoing source of inflation," Devarsh Vakil, Head of Prime Research at HDFC Securities said.

Following the decision, Milan Vaishnav, founder of Gemstone Equity Research & Advisory Services, highlighted that Nifty has rebounded from the 21,900–22,000 zone, which aligns with the 100-week moving average. "In the immediate future, I expect these levels to hold. On the upside, Nifty is likely to take a breather in the 23,000–23,150 zone, where it will face strong resistance," he said.

Given this setup, he advised investors to take on a selective and stock-specific approach. "Rather than chasing stocks that have run up too hard, it is imperative to focus on those with strong and attractive technical setups and at least improving relative strength," he advised.

On March 19, Nifty and Sensex rose for a third straight session, driven by strong buying in banking, oil & gas, and metal stocks. However, losses in FMCG and IT stocks limited the rally. Midcaps and smallcaps outshone, with the Midcap 100 and Smallcap 100 indices jumping 2.6 percent and 2.43 percent, respectively, extending their strong run.

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